Economic Growth Remains below Initial Plan

In September 2016 real GDP growth pace (according to preliminary estimations) made up 1.5%. The figure marked 2.2% in the third quarter of 2016, while January to September growth made up 2.6%.

This figure slightly exceeds the IMF forecast, under which Georgia’s economic growth in 2016 was fixed at 2.5%. At the same time, the World Bank prognosis totaled 3%.

It should be also noted that GDP quarter growth dynamics for several years shows declination trends. Economic growth in the 4th quarter of 2013 made up 7.6% compared to the same period of 2012. Over the past 6 quarters, this indicator made up only 2.6% and this is very low figure for developing countries like Georgia.

Crediting volume also shows that economic activity is declining. In 2016 commercial banks have shrunk crediting volume. In 2015 averaged annual growth in loans in national economy made up 31.9%, while in January-July 2016 the growth pace marked only 9.3%.

It is worth noting that crediting volume was quickly rising in development sector (31.2%) and hotels and restaurants sector (18.5%), while crediting volume sharply dropped in commerce and transport and communication sectors, by 8.5% and 11.4% on average, respectively. Consumer loans growth pace also extremely decreased – the averaged figure was 21.3% in 2015 and in the reporting period the indicator recorded only 1.6%.

Crediting volume also significantly declined in healthcare and social services, but the contraction in absolute indicators was insignificant, because their ratio in loans of this category is very low. It is worth noting similar contraction tendency continues throughout the year (excluding the development sector, which recorded 22-25% upturn at the beginning of the year and 41-45% growth in July-August).

As reported, this year government of Georgia forecasts 3% upturn. This prognosis seems questionable, but National Bank of Georgia makes optimistic forecasts anyway. According to the November monetary policy report, economic growth will mark 3.5% in 2016. Despite risks exposed in the third quarter, the upturn may be lower than the announced indicator.

According to the forecast, economic growth is planned at 4.5% for 2017 thanks to higher investment inflows and increased consumption amid normalization of monetary policy and fiscal stimulus.

According to weak joint demand among trade partners, it is expected that in 2017 net exports have a little negative contribution as a result of slight growth in goods exports and increased demand for imports. The mentioned forecast implies that, along with improved economic conditions among trade partners, in 2017 money inflows and revenues from tourism sector will increase.

The NBG optimistic forecasts are encouraging our society, but it is doubtful whether these forecasts will be fulfilled in reality. Even the planned monetary policy could not be maintained within planned indicators.

As reported, the NBG expected 5% surge in inflation, while we have deflation, according to October indicators. According to the NBG forecast, low inflation indicators will be maintained in fourth quarter of 2016. However, the figure will increase stage by stage starting 2017 and will remain within target indicator in midterm period.

Starting 2018 the NBG target indicator will be 3% instead of current 5%.

The 2016 budget policy is the result of low economic growth. The budget spending priorities show that no special economic breakthrough is expected. For example, according to January to June final report, social allowances constituted a major part of state budget expenditures – 37.4%, while expenditures on wages made up 17.7%, and on goods and services – 12.6%. To put simply, more than 67% of budget funds were spent on directions that give no economic return. State budget is 10 billion GEL and 6.7 billion was spent without economic return. Naturally, GDP growth would be low.